BATTLE BUILDS OVER CALCULATING PENSIONS
PENSION OVERHAUL LEAVES
A LOT OPEN TO DEBATE

Some types of pay not addressed in law

Debate is brewing across the state over which types of pay can be counted toward a public worker’s pension — fallout from landmark changes that went into effect this year.

The overhaul, signed into law by Gov. Jerry Brown, was intended to slash swelling pension costs by raising the retirement age for new workers and increasing employee pension contributions.

The sweeping revision, known as the California Public Employees’ Pension Reform Act of 2013, also limits what’s considered pensionable compensation. This is crucial because it’s aimed to curb pension spiking and other issues that have caused governments to bleed money.

However, redefining what types of pay can be used to determine pension amounts has led to at least four legal challenges from labor groups mainly in Northern California. And the state’s largest public retirement system, which includes nearly all the cities in San Diego County, has stepped in to offer its interpretation of the term. The city of San Diego has a separate pension system.

Labor groups in Contra Costa, Alameda, Marin and Merced counties have filed lawsuits to challenge the constitutionality of AB 197, which bars retirement associations from using enhanced pay to determine pension benefits for its existing members, such as lump-sum payments for unused vacation and sick time when workers quit, retire or are fired.

Labor groups in Merced said they have a constitutional right to get any pension benefits that were promised to them during their employment “as well as to any enhancements to those benefits conferred,” according to a lawsuit filed Dec. 19. Those enhancements include cash-outs of unused vacation time. Similar language is used in the other three lawsuits.

In a rare move, the state has intervened in all four cases to “defend this law from erosion,” said Elizabeth Ashford Davis, chief deputy press secretary for Gov. Jerry Brown’s office. The California Attorney General’s Office filed the notices of intervention, at the governor’s direction.

Separately, the California Public Employees’ Retirement System, or CalPERS, has raised its own issues with the interpretation of pensionable compensation for new hires.

One of the laws in the pension overhaul package, AB 340, states that pensionable compensation for new employees is considered “the normal monthly rate of pay or base pay of the member paid in case.”

The law lists specific exclusions, including one-time perks, unused vacation time and sick time, and employee allowances for vehicles and uniforms. But it doesn’t specify what can be included.

CalPERS, in a December memo, made a case that about 100 types of specialty pay — such as additional money for being bilingual or a certified public accountant — can be counted toward worker pension benefits.

To make its case, CalPERS cites an existing state law. It says agencies that contract with CalPERS must report those nearly 100 types of pay, deemed “special compensation,” to the retirement system.

The emphasis is on the term “must be reported” because it’s synonymous with pensionable pay, said CalPERS spokesman Edd Fong.

“There’s nothing in the new law that wipes that out,” Fong said.

However, if lawmakers intended to exclude those types of pay, then they need to write and enact “clean-up legislation,” Fong added.

Fong said that pension overhaul expressly forbids using one-time payments in pension calculations. But the roughly 100 premium payments CalPERS has cited are all recurring and compensates workers, mainly those in law enforcement, for special skills.

Proposed legislation is already in the pipeline to address ambiguities. It will likely be amended again within weeks to address the definition of pensionable income.

Brown’s office does not comment on pending legislation but appears fervent in defending the spirit of last year’s pension overhaul.

“We believe the pension reform of 2012 was necessary and any new law should strengthen and not weaken what has been accomplished,” said Ashford Davis, the governor’s spokeswoman.

The bill’s author, Sen. Gloria Negrete McLeod, could not be reached for comment after multiple attempts.

Dan Pellissier, president of Sacramento-based group California Pension Reform, disagrees with CalPERS’ interpretation of pensionable compensation.

“It’s no surprise that they would do everything they could to subvert the intentions of the Legislature and the governor,” Pellissier said.

“The Legislature said ‘base pay,’” he added. “Base pay does not include add-ons. A plain hamburger does not include lettuce, pickles, crinkly fries, mayo … and hundreds of other things.”

The San Diego County Taxpayers Association echoed Pellissier’s sentiments, contending that CalPERS’ interpretation goes against “the spirit of the law,” said Chris Cate, the association’s vice president and interim president.

The clarification offered by CalPERS is up for discussion among stakeholders and its contracting members, according to Fong.